Economists Do It With Models

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Random Link: An Attempt At General Equilibrium Analysis, Graphic Content Style…

March 25th, 2010 · 6 Comments
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Economists talk a lot about the concept of equilibrium, or steady state, in markets. There are actually two kinds of equilibrium analysis- partial equilibrium analysis, where one looks at a single market in isolation and assumes that most other things are held constant, and general equilibrium analysis, which models not only individual markets but how they all fit together. Obviously, the second is harder than the first, so it shouldn’t be surprising that there is more of the first done than the second.

Here is a great graphical representation of why general equilibrium analysis is hard, and why a butterfly flapping its wings the wrong way in Southeast Asia could cause…well, potentially anything, apparently.

(Hat tip to Tim Schilling.)

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6 responses so far ↓

  • 1 Dave M. // Mar 25, 2010 at 3:08 pm

    Also a good piece of evidence that shows how quixotic attempts by government at controlling the market are always doomed to fail.

  • 2 Don Gooding // Mar 26, 2010 at 2:39 pm

    It seems to illustrate the futility of equilibrium analysis as a whole.

  • 3 econgirl // Mar 26, 2010 at 4:06 pm

    I’m pretty sure Einstein said something similar at one point.

  • 4 Warren Jensen // Mar 26, 2010 at 8:15 pm

    Very cool graphic, and it’s equally useless, too!

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